The Financial Crisis and Information Gaps: Progress Report Action Plans and Timetables pptx

LIST OF ABBREVIATIONS AND ACRONYMS 2008 SNA The System of National Accounts 2008 BPM6 Balance of Payments and International Investment Position Manual, sixth edition GFSM 2001 Govern

The Financial Crisis and Information Gaps

Progress Report Action Plans and Timetables

Prepared by the IMF Staff and the FSB Secretariat

May 2010

C ONTENTS P AGE

Contents  2

List of Abbreviations and Acronyms 3

Executive Summary 4

Introduction 11

I Progress made since November 2009 11

A Conceptual/statistical framework needs development 13

Build-up of risk in the financial sector 13

Cross-border financial linkages 14

Vulnerability of domestic economies to shocks 16

B Conceptual/statistical frameworks exist and ongoing collection needs enhancement 16

II Challenges and Institutional Arrangements 18

III Work Program 19

Summary Table: Progress Report, Action Plans, and Timetables 5

Figure 1: Overview of the 20 Recommendations 12

Annex: Detailed Action Plans and Timetables 20

LIST OF ABBREVIATIONS AND ACRONYMS

2008 SNA The System of National Accounts 2008

BPM6 Balance of Payments and International Investment Position

Manual, sixth edition

GFSM 2001 Government Finance Statistics Manual, 2001

GFSR IMF’s Global Financial Stability Report

OTC Over-the-Counter

PSD Public Sector Debt Guide

SNA System of National Accounts

The Financial Crisis and Information Gaps: Progress Report

Action Plans and Timetables

E XECUTIVE S UMMARY

In November 2009 the G-20 finance ministers and central bank governors endorsed 20

recommendations to address information gaps described in the report “The Financial

Crisis and Information Gaps” prepared by the Financial Stability Board (FSB) Secretariat

and International Monetary Fund (IMF) staff They requested the FSB Secretariat and the IMF staff to report back by June 2010 with a concrete plan of action, including a

timetable, to address each of the outstanding recommendations in the report

This report responds to that request A consultative process was conducted involving international experts on financial stability and statistics from national authorities,

international agencies, as well as standard setting bodies The report describes the

progress since November 2009 and the plans going forward It contains a number of key messages:

 Work has started to address all the 20 recommendations The November 2009

Report provided significant impetus for further action and, since then,

considerable progress has been made in a number of the recommendations

 Some of the most challenging recommendations (such as those calling to better

understand global financial networks) are among the most important for

enhancing financial stability analysis

 Closing all the gaps will take time and resources, and will require coordination at

the international level and across disciplines, as well as strong high-level support The legal framework for data collection might need to be strengthened in some economies

 Flexibility and prioritization in the timetable of implementation will be needed to

account for the countries’ level of statistical development and resource

constraints

 Before the next progress report is due in June 2011, IMF staff plan to visit

individual G-20 economies to discuss reporting practices and feasible strategies for implementing the work plans and timetables going forward Feedback from these visits will be reflected in the next report

Set out ahead is a summary table of the progress to date, and the proposed action plans going forward, with timetables, in addressing the 20 G-20 endorsed recommendations Detailed action plans and timetables are in the Annex The report seeks endorsement by the G-20 ministers and central bank governors of these action plans and timetables

5

Summary Table: Progress Report, Action Plans, and Timetables

1 Staff of FSB and the IMF report back to G-20

Finance Ministers and Central Bank Governors by

June 2010 on progress, with a concrete plan of

action, including a timetable, to address each of

the outstanding recommendations Thereafter, staff

of FSB and IMF to provide updates on progress

once a year Financial stability experts,

statisticians, and supervisors should work together

to ensure that the program is successfully

implemented

As requested in November 2009, the present report, prepared by the FSB Secretariat and IMF staff, is provided to the G-20 finance ministers and central bank governors for their meeting in June 2010

FSB Secretariat and IMF staff to provide a second progress report by June 2011 For those recommendations where there do exist frameworks and ongoing collection (the second column in figure 1), the next report intends to provide detailed information

on progress in data compilation and dissemination for each G-20 economy It will be recognized that in some instances a specific recommendation might not be applicable to all G-20 economies IMF staff intends to visit individual G-20 economies to discuss reporting practices In all other cases, progress towards implementation of the recommendations will be reported

Monitoring Risk in the Financial Sector

2 The IMF to work on increasing the number of

countries disseminating Financial Soundness

Indicators (FSIs), including expanding country

coverage to encompass all G-20 members, and on

other improvements to the FSI website, including

preferably quarterly reporting FSI list to be

reviewed

In March, 2010, the IMF’s Executive Board decided to include seven FSIs in the IMF’s Special Data Dissemination Standard (SDDS), on an encouraged basis Work is in progress to integrate the regularly reported

FSI data into the IMF’s Global Financial Stability Report by April 2011

IMF staff to work in the implementation of the IMF’s Executive Board decision on the SDDS, particularly with countries subscribing to this standard IMF staff will encourage the four G-20 economies that do not report FSIs to disseminate these data on the IMF website In the second half of 2011, the IMF is

to organize a meeting of the FSI Reference Group of Experts to discuss possible changes in the list of FSIs and the methodology for compiling them The IMF staff is to report back to the IMF Executive Board on the work on FSIs at the Eighth Review of Data Standards, provisionally scheduled for the first half of

2012

3 In consultation with national authorities, and

drawing on the Financial Soundness Indicators

Compilation Guide, the IMF to investigate,

develop, and encourage implementation of

standard measures that can provide information on

tail risks, concentrations, variations in

distributions, and the volatility of indicators over

time

Initial work has been undertaken to identify the key issues The IMF conducted a conference in May 2010 attended by academics, financial sector representatives, and public sector officials to discuss conceptual issues

IMF staff to develop conceptual guidance in the first half of 2011for discussion at the FSI Reference Group of Experts

6

4 Further investigation of the measures of

system-wide macroprudential risk to be undertaken by the

international community As a first step, the BIS

and the IMF should complete their work on

developing measures of aggregate leverage and

maturity mismatches in the financial system,

drawing on inputs from the Committee on the

Global Financial System (CGFS) and the Basel

Committee on Banking Supervision (BCBS)

Drawing on the BIS’s International Banking Statistics (IBS) data, the BIS has made recent advances in developing measures of maturity mismatches (“funding gaps”) on banks’

international balance sheets, and is pursuing further enhancements The IMF conducted a conference in May 2010 attended by academics, financial sector representatives, and public sector officials to discuss related conceptual issues

IMF and BIS staff intend to complete their work on developing measures of aggregate leverage and maturity mismatches in the financial system, in time for the June 2011 report

5 The CGFS and the BIS to undertake further work

in close cooperation with central banks and

regulators on the coverage of statistics on the

credit default swap markets for the purpose of

improving understanding of risk transfers within

this market

Agreements have already been reached by the BIS for the reporting central banks to provide more detail on the Credit Default Swaps data, with regard to counterparties, starting with data reported for June 2010, and with regard to geography of counterparties and underlying instruments, starting with data reported for June 2011

Implementation of the agreements reached, by mid-calendar

2011

6 Securities market regulators working through

IOSCO to further investigate the disclosure

requirements for complex structured products,

including public disclosure requirements for

financial reporting purposes, and make

recommendations for additional improvements if

necessary, taking account of work by supervisors

and other relevant bodies

In April 2010, IOSCO published a report on Asset Backed Securities (ABS) Disclosure Principles providing guidance to securities regulators who are developing or reviewing their regulatory disclosure regimes for public offerings and listings of ABS

(http://www.iosco.org/news)

Later this year, IOSCO may also consider further work to develop disclosure principles for more complicated instruments such as collateralized debt obligations and examine the

distinction between public and private offerings which could lead to the development of disclosure principles for private offerings of ABS

7 Central banks and, where relevant, statistical

offices, particularly those of the G-20 economies,

to participate in the BIS data collection on

securities and contribute to the further

development of the BIS-ECB-IMF Handbook on

Securities Statistics (Handbook) The Working

Group on Securities Databases to develop and

implement a communications strategy for the

Handbook

In March 2010, the Review Group on the

BIS-ECB-IMF Handbook on Securities Statistics (Handbook) met to discuss the draft

of Part 2 of the Handbook which focuses on

statistics of debt securities holdings This followed completion last year of Part 1 of the

Handbook which focused on statistics of debt

securities issues The Review Group includes experts from central banks, national

agencies, and international organizations

Part 2 of the Handbook is well-advanced and scheduled to be

released on the IMF website in mid-calendar 2010 Part 3 of the

Handbook is envisaged to cover non-debt securities statistics

(equities) and be finalized by the end of calendar 2011 The BIS aims to complete the initial improvement of its quarterly securities data collection for all G-20 economies before end- August 2010 It intends to further expand its securities database based on the conceptual frameworks developed in Part 1 and

Part 2 of the Handbook

7

International Network Connections

8 The FSB to investigate the possibility of improved

collection and sharing of information on linkages

between individual financial institutions, including

through supervisory college arrangements and the

information exchange being considered for crisis

management planning This work must take due

account of the important confidentiality and legal

issues that are raised, and existing information

sharing arrangements among supervisors

The FSB has set up a working group (covering recommendations 8 and 9) that is moving forward in three work streams:

(i) identifying data needs in various key areas—micro prudential supervision, macro prudential oversight, and crisis management;

(ii) mapping data sources to supply these needs, and (iii) reviewing the legal and confidentiality issues involved in the provision of data

The FSB working group aims at producing a report and a draft template for systemically important global financial institutions for review by the FSB by the end of calendar 2010

9 The FSB, in close consultation with the IMF, to

convene relevant central banks, national

supervisors, and other international financial

institutions, to develop by end 2010 a common

draft template for systemically important global

financial institutions for the purpose of better

understanding the exposures of these institutions to

different financial sectors and national markets

This work should be undertaken in concert with

related work on the systemic importance of

financial institutions Widespread consultation

would be needed, and due account taken of

confidentiality rules, before any reporting

framework can be implemented

10 All G-20 economies are encouraged to participate

in the IMF’s Coordinated Portfolio Investment

Survey (CPIS) and in the BIS’s International

Banking Statistics (IBS) The IMF and the BIS are

encouraged to continue their work to improve the

coverage of significant financial centers in the

CPIS and IBS, respectively

Country participation in the IBS has continued to increase The Committee on Global Financial Systems (CGFS) and the IMF Committee on Balance of Payments Statistics (BOPCOM) have set up working groups to investigate possible enhancements

to the IBS and the CPIS, respectively

Both the BIS and IMF to continue working to increase country participation in their surveys, including from G-20 economies CGFS and BOPCOM working groups to report back to their parent committees in the second half of calendar 2010 for decisions on possible enhancements

8

11 The BIS and the CGFS to consider, amongst other

improvements, the separate identification of

nonbank financial institutions in the consolidated

banking data, as well as information required to

track funding patterns in the international financial

system The IMF, in consultation with the IMF’s

Committee on Balance of Payments Statistics, to

strive to enhance the frequency and timeliness of

the CPIS data, and consider other possible

enhancements, such as the institutional sector of

the foreign debtor

12 The IMF to continue to work with countries to

increase the number of International Investment

Position (IIP) reporting countries, as well as the

quarterly reporting of IIP data The Balance of

Payments and International Investment Position

Manual, sixth edition (BPM6) enhancements to the

IIP should be adopted by G-20 economies as soon

as feasible

In March 2010, the IMF Executive Board decided to prescribe for subscribers to the IMF’s SDDS, after a four year transition period, quarterly reporting (from annual) of the IIP data, with a maximum lag of one quarter (quarterly timeliness) The working group set up by BOPCOM described above

is considering ways of improving the availability of bilateral IIP data and

accelerating implementation of the BPM6’s

recommendations for enhancements, including the separate identification of nonbank financial institutions

BOPCOM working groups to report back in the second half of calendar 2010 IMF staff to work with economies to implement the Executive Board decision on the SDDS by 2014 Guidance

is to be provided in the upcoming BPM6 Compilation Guide

IMF staff will encourage reporting by the G-20 economy that does not disseminate IIP as yet

13 The Interagency Group on Economic and

Financial Statistics (IAG) to investigate the issue

of monitoring and measuring cross-border,

including foreign exchange derivative, exposures

of nonfinancial, and financial, corporations with

the intention of promoting reporting guidance and

the dissemination of data

A working group has been created under the auspices of the IAG and led by the BIS It has undertaken an initial review of existing methodological guidance and of data availability

In 2010, the BIS-led working group intends to bring together information on various datasets that shed light on the cross- border positions of non-bank financial corporations and non- financial corporations either from direct or indirect sources, and work on an issues paper on the concept of nationality

/consolidation as compared to residency/location This work will form the background for a workshop organized later in calendar 2010 (with the sponsorship of the Irving Fisher

9

14 The IAG consulting with the FSB to revisit the

recommendation of the G-22 to examine the

feasibility of developing a standardized template

covering the international exposures of large

nonbank financial institutions, drawing on the

experience with the BIS’s IBS data, other existing

and prospective data sources, and consulting with

relevant stakeholders

Committee) to assist in identifying the issues that may need to

be addressed in specific methodological standards or guidelines, and in developing reporting templates

Sectoral and Other Financial and Economic Datasets

15 The IAG, which includes all agencies represented

in the Inter-Secretariat Working Group on

National Accounts, to develop a strategy to

promote the compilation and dissemination of the

balance sheet approach (BSA), flow of funds, and

sectoral data more generally, starting with the

G-20 economies Data on nonbank financial

institutions should be a particular priority The

experience of the ECB and Eurostat within Europe

and the OECD should be drawn upon In the

medium term, including more sectoral balance

sheet data in the data categories of the Special

Data Dissemination Standard could be considered

A working group has been created under the auspices of the IAG and led by the IMF The IMF has created an inventory of existing practices with regard to the reporting of data

to international agencies or otherwise disseminating sectoral data

A conference of experts is planned in early 2011 to share experiences, discuss the gaps, and seek to agree upon some minimum reporting needs for G-20 economies, drawing upon the existing frameworks of the IMF and the OECD The work program for the Eighth Review of the IMF’s Data Standards Initiatives, provisionally scheduled for the first half of 2012, includes the possibility of strengthening the SDDS with regard

to integrated sectoral balance sheet information

16 As the recommended improvements to data

sources and categories are implemented, statistical

experts to seek to compile distributional

information (such as ranges and quartile

information) alongside aggregate figures, wherever

this is relevant The IAG is encouraged to promote

production and dissemination of these data in a

frequent and timely manner The OECD is

encouraged to continue in its efforts to link

national accounts data with distributional

information

The OECD and Eurostat have set up task forces to define common international methodology and implement pilot studies

During 2010 and 2011, the OECD and Eurostat task forces will develop the methodology for matching survey data with national accounts aggregates and pilot studies will be conducted in individual countries It is expected that a first set of methodological studies and estimates will be completed in the course of 2012 Once methodologies are in place, periodic monitoring of the distribution of household economic resources (income, consumption, and wealth) within the System of National Accounts could be envisaged

10

17 The IMF to promote timely and cross-country

standardized and comparable government finance

data based on the accepted international standard,

the Government Finance Statistics Manual 2001

In March 2010, the IMF Executive Board decided to adopt a standardized presentation

of fiscal data following the Government Finance Statistics Manual, 2001 (GFSM 2001), with staff reports to use this

format by May 2011 In addition, the fiscal data of the IMF’s World Economic Outlook

(WEO) now follows the GFSM 2001 format

The IMF staff to work with countries to promote the

GFSM 2001 consistent with the IMF Executive Board decision

18 The World Bank, in coordination with the IMF,

and consulting with the Inter-Agency Task Force

on Finance Statistics, to launch the public sector

debt database in 2010

In March 2010, the Task Force on Finance Statistics (TFFS) endorsed the proposal for the World Bank to gather quarterly public sector debt data from developing and emerging market countries

The website to be launched by end-calendar year 2010

19 The Inter-Secretariat Working Group on Price

Statistics to complete the planned handbook on

real estate price indices The BIS and member

central banks to investigate dissemination on the

BIS website of publicly available data on real

estate prices The IAG to consider including real

estate prices (residential and commercial) in the

Principal Global Indicators (PGI) website

Under the auspice of the Inter-Secretariat Working Group on Price Statistics (IWGPS), and led by Eurostat, a first draft of the Handbook on Residential Property Price Indices is expected to be posted for comment

in mid-calendar 2010 with, following further international consultations, a final draft planned for mid-calendar 2011 In February

2010, the BIS solicited authorization from the central banks reporting residential property price indices to allow their dissemination on the BIS website

The IWGPS to complete its work on schedule Provided the BIS receive authorization from its member central banks, data on residential property price indices will be disseminated on the BIS website They will then be made available through the PGI website later in 2010

Communication of Official Statistics

20 The G-20 economies to support enhancement of

the Principal Global Indicators website, and close

the gaps in the availability of their national data

The IAG should consider making longer runs of

historical data available

The PGI website was significantly enhanced

in December 2009 and offers access to an on-line database with user-selected longer runs of historical data presented in comparable units of measure (growth rates, index numbers, and/or percent of GDP)

During March 2010, the PGI website was accessed by visitors from over 150 countries

During 2010, the high priorities for enhancing the PGI website include: (i) expanding the data coverage and timeliness of the PGI website by the G-20 economies; (ii) encouraging use of existing systems to report data to international organizations (such as the IMF Integrated Correspondence System), and (iii) increasing the world-wide sharing of data disseminated by G-20 economies by promoting the adoption of SDMX for the dissemination of official statistics

The Financial Crisis and Information Gaps: Progress Report

Action Plans and Timetables

I NTRODUCTION

1 For the meeting of the G-20 finance ministers and central bank governors in

St Andrews, Scotland, in November 2009, Financial Stability Board (FSB) Secretariat

and International Monetary Fund (IMF) staff presented a report on “The Financial Crisis

and Information Gaps.”1 The report, which contained 20 recommendations for closing

information gaps, was endorsed at the meeting, with a request that FSB and IMF staff report back by June 2010 on progress, with a concrete plan of action, including a

timetable, to address each of the outstanding recommendations (Recommendation # 1)

2 The present report responds to this request It describes progress so far, and priorities and constraints going forward, and notes institutional arrangements for guiding and monitoring progress Moreover, two-page progress reports for each recommendation providing more details on action plans and timetables are presented in the Annex

3 To ensure that the action plans and timetables were informed by a broad range of expertise, the IMF Statistics Department (STA) and the FSB Secretariat organized a senior official’s conference in Basel in April 2010, hosted by the Bank for International Settlements (BIS) The material from the conference, including a summary of key points made, is available at www.imf.org/external/np/seminars/eng/2010/infogaps/index.htm The work has also benefited from consultations and coordination among the members of the Inter-Agency Group on Economic and Financial Statistics (IAG).2

I P ROGRESS M ADE S INCE N OVEMBER 2009

4 The November 2009 report provides a thematic framework for closing

information gaps highlighted during the global financial crisis The 20 recommendations are grouped under four themes (build-up of risk in the financial sector, cross-border financial linkages, vulnerability of domestic economies to shocks, and improving

communication of official statistics)

5 Work has started to address all the recommendations In some cases, closing the gaps raises significant challenges In others, the identified gaps relate to existing

initiatives where the conceptual framework for capturing data is well developed

Considerable progress has been made in several recommendations Going forward, prioritization, coordination, and cooperation among international agencies and G-20 economies remains essential to a successful implementation of the work program

1 The G-20 November 2009 Report is available at http://www.imf.org/external/np/g20/pdf/102909.pdf

2 The members of the IAG are the Bank for International Settlements, the European Central Bank, Eurostat, the IMF (chair), the Organization for Economic Co-operation and Development, the United Nations, and the World Bank

6 Figure 1 presents an overview of the 20 recommendations, organized in a matrix form The rows reflect the four themes noted above and the columns reflect their status in terms of whether reporting/conceptual frameworks exist or need to be developed This is

a broad representation to provide a stylized overview of the present situation

Figure 1: Overview of the 20 Recommendations Conceptual/statistical framework

needs development

Conceptual/statistical frameworks exist and ongoing collection needs enhancement Build-up of risk

in the financial

sector

# 3 (Tail risk in the financial system and variations in distributions of, and concentrations in, activity)

# 4 (Aggregate Leverage and Maturity Mismatches)

# 13 and # 14 (Financial and Nonfinancial Corporations cross- border exposures)

# 10 and # 11 (International Banking Statistics (IBS) and the Coordinated Portfolio Investment Survey (CPIS))

# 12 (International Investment Position (IIP))

# 18 (Public Sector Debt)

# 19 (Real Estate Prices)

Improving

communication of

official statistics

# 20 (Principal Global Indicators)

7 This report is organized along the columns and rows as presented in Figure 1

A Conceptual/Statistical Framework Needs Development

8 Some of the most challenging recommendations are also among the most

important for improving financial stability analysis and macro-policy decision making more broadly These include gaining a better understanding of global financial networks

9 These important recommendations require considerable analytical input, as the crisis has highlighted complexities that may prove difficult to measure Cooperation across disciplines—financial stability, supervisory, statistical, and coordination with standard setters, notably the Basel Committee on Banking Supervision, as well as high level support are needed to deliver a successful outcome There may also be some need for strengthening legal frameworks for data collection in some economies

Build-up of risk in the financial sector

10 The build-up of leverage and maturity mismatches within the financial system were identified at an early stage as major contributing factors to the crisis

(recommendation # 4) Further progress needs to be made on the conceptual basis for measurement, and on which data gaps would be the most critical to fill Given the

importance of monitoring leverage and maturity mismatches to prevent future crises, addressing the gaps is a high priority

11 Data gaps in this area were already noted in 2009 by the report by the Financial

Stability Forum (the predecessor of the FSB) on “Addressing Procyclicality in the

Financial System” and by the IMF Staff Position Note on “Addressing Information Gaps.” The relevance of these factors in cross-border funding markets was also

highlighted in a recent report by the Committee on Global Financial Systems (CGFS).3For leverage, in particular, a recent study by the McKinsey Global Institute concluded that policymakers should work toward developing an international system for tracking leverage at a granular sector level across countries and over time.4

12 Further, the need to look beyond aggregated data and improve the identification of tail risks (as well as variations in distributions of, and concentrations in, activity) was another lesson drawn by financial stability analysts from the crisis This is reflected in Recommendation # 3

13 The IMF and the BIS staff are working closely on addressing these gaps.The BIS has made significant recent advances in the analysis of maturity mismatches (“funding

3 The Functioning and Resilience of Cross Border Funding Markets, CGFS paper no 37, March 2010

4 McKinsey Global Institute, “Debt and Deleveraging: The Global Credit Bubble and its Economic

Consequences,” January 2010

gaps”) for the banking sector on the basis of its IBS data. 5 But pursuing this work further

is likely to involve longer-term projects, as the analytical and data challenges involved remain significant For instance, in practice, the measurement of leverage and maturity mismatches is not necessarily conceptually uniform across sectors, institutions or markets and, therefore, it may prove difficult (or in fact misleading) to devise aggregate measures across sectors.To take this work forward, the IMF held a conference on these topics in late May 2010, which was attended by academics, private sector representatives, and public sector officials, while the BIS is looking to further enhance the work described above on “funding gaps” for the banking sector, drawing on the IBS data In time for the June 2011 report, IMF and BIS staff intend to complete their work on developing

measures of aggregate leverage and maturity mismatches in the financial system

14 In April 2010, the International Organization of Securities Commissions (IOSCO) released a report on Asset Backed Securities Disclosure Principles6 to guide securities regulators who are developing or reviewing their regulatory disclosure regimes for public offerings and listings of asset-backed securities (Recommendation # 6) Later this year, IOSCO may also consider further work to develop disclosure principles for more

complicated structured products, such as collateralized debt obligations

Cross-border financial linkages

15 In terms of priorities, the improved understanding of global financial networks and the role of systemically important global financial institutions (SIGFIs) are

considered by the financial stability experts consulted to be particularly important

Although financial network analysis is increasingly recognized as a priority,7 the limited availability of data is a major challenge to analysts

16 In this connection, two recommendations (# 8 and # 9) cover the possibility of

improved collection and sharing of information on linkages between individual financial institutions, and the development by end-calendar 2010 of a common draft template for SIGFIs.8 These recommendations pose significant analytical and legal issues There is a

5 For details, see McGuire, P and G von Peter (2009), “The US dollar shortage in global banking and the international policy response,” BIS Working Papers, no 291, October

6 http://www.iosco.org/news

7 For instance, a good description of this work was provided to the IMF Executive Board in the March 2010

paper on Financial Sector Surveillance and the Mandate of the Fund by IMF staff (available at

http://www.imf.org/external/np/pp/eng/2010/031910.pdf) Other relevant work includes New Financial

Order: Recommendations preparing G 20-London, April 2, 2009 O Issing, J Asmussen, J.P Krahnen, K

Regling, J Weidmann, W White; Rethinking the Financial Network, Andrew Haldane, Bank of England, May 5, 2009; Recent advances in modeling systemic risk using network analysis, Introductory remarks by

Gertrude Tumpel-Gugerell, ECB workshop, October 5, 2009; and in the IMF Working Paper 10/105,

Cross-Border Financial Surveillance: A Network Perspective, by Marco Espinosa and Juan Solé.

8 Also, relevant for this work is the report on Guidance to Assess the Systemic Importance of Financial

Institutions, Markets and Instruments: Initial Considerations produced by the staff of the IMF, BIS and

need to develop a conceptual framework and identify the specific data needs before any additional collection of data can be initiated In this connection, the FSB has set up a working group to take work related to these recommendations forward, including

identifying the data needs, map data sources, and review the legal and confidentiality issues involved in the provision of data by individual institutions This work could apply

to both systemically important bank and non-bank financial institutions

17 There is also a lack of information on the cross-border exposures of large

nonbank financial institutions, despite their increasing importance in the international financial markets as highlighted by Recommendation # 14 Further, for policy makers to better understand the risks that entities in their economy face, and more broadly

understand the distribution of risks in the global economy, the need for data on

corporations (both financial and nonfinancial) on a consolidated basis (in addition to the usual residency-based perspective) was highlighted by the crisis (Recommendation

# 13).9For instance, in some economies, locally-owned nonfinancial corporations were using offshore entities to borrow funds This activity was not known to domestic policy makers, until risks crystallized and these loans came back on the corporations’ balance sheets when the crisis intensified

18 These recommendations raise conceptual and definitional challenges for

economic and financial statisticians, not least to determine how best to adapt (or link) data compiled on a residency basis to (or with) information on a group consolidated basis.10 In particular, traditional economic and financial statistics, such as national

accounts, are compiled based on the residence of the entity (residency criteria)

19 A working group of the IAG, led by the BIS, has been created to take forward the work on these recommendations (# 13 and # 14) The working group intends to carry out

a stock-take of existing data collection initiatives, both with respect to direct sources as well as to indirect sources, i.e., those where these sectors might be identified as

counterparties Further, after a stocktaking of available methodologies for measuring international exposures of financial and non-financial corporations, the plan is to work on

an issues paper on the concept of consolidation as compared to residency/location and FSB in response a request made by the G-20 Leaders in April 2009 to develop guidance for national authorities to assess the systemic importance of financial institutions, markets and instruments The report

10 The issue of consolidation of enterprise groups is on the research agenda of the System of National

Accounts See page 604 of the System of National Accounts, 2008 Available at:

http://unstats.un.org/unsd/nationalaccount/SNA2008.pdf

organize a workshop to help identify more clearly the methodological and data

compilation guidance needed For Recommendation # 14 this includes the need to

develop a standardized template covering the cross-border exposures of large nonbank financial institutions

network connections in an increasingly globalized world However, the technical and resource challenges should not be underestimated, most particularly for the gaps related

to SIGFIs being addressed by the FSB working group On these, close consultation would

be needed with the intermediaries, who themselves should benefit substantially from improved data on network connections, as a result of an improved understanding of how their business activities relate to the aggregate picture Given the significant resource implications of collecting and—more importantly—making efficient use of all these additional data, this effort will remain focused on what is necessary to deliver concrete improvements.

Vulnerability of domestic economies to shocks

21 The lack of information on how income, consumption, and wealth are distributed within sectors, particularly households (as reflected in Recommendation # 16) hampered the identification of vulnerabilities developing in the domestic economy The OECD, with Eurostat, are leading this work to rectify this gap, and are looking to define common international methodology and implementing pilot studies

B Conceptual/statistical Frameworks Exist and Ongoing Collection Needs

Enhancement

22 The November 2009 Report provided significant impetus for further action for those recommendations for which conceptual/statistical frameworks exist and there is need to strengthen ongoing collection For several of the 20 recommendations,

international bodies have already taken a number of actions that support their

implementation, including the IMF with regard to FSIs (# 2), IIP (# 12), and Government Finance Statistics (# 17), and the BIS (via the CGFS) with regard to Credit Default Swaps (# 5) For other significant recommendations progress has been made in international working groups and task forces (securities (# 7), public sector debt (# 18), real estate prices (# 19), and the Principal Global Indicators (PGI) website (# 20))

23 In March 2010, the IMF Executive Board took a number of decisions related to recommendations # 2, # 12, and # 17 In particular, the IMF Executive Board decided to enhance the Special Data Dissemination Standard (SDDS) by11:

11 IMF Public Information Notice (PIN) 10/41 of March 23, 2010

 including seven FSIs into the SDDS on an “encouraged” basis (that is, not legally

“prescribed” under the SDDS)―to strengthen information about the financial sector and better detect system risks (Recommendation # 2); and

 moving to quarterly reporting (from annual) of the IIP data, with a maximum lag

of one quarter (quarterly timeliness), on a “prescribed” basis, after a four year transition period―in order to better understand cross-border linkages

(Recommendation # 12).12

24 Also in March 2010, the IMF Executive Board approved a phased migration

strategy for implementing the Government Finance Statistics Manual 2001 (GFSM 2001)

as the standard for IMF fiscal data (Recommendation # 17).13 This will contribute to better and more comparable fiscal data, including on government assets and liabilities

25 In June 2009 the CGFS approved changes to Credit Risk Transfer Statistics (Recommendation # 5) that include improved information on counterparty risk and exposure to various reference entities and expanding the reporting to collect details on instruments such as index CDS contracts http://www.bis.org/publ/cgfs35.htm)

Subsequently agreements have been reached by the BIS with the reporting central banks

to report these new datasets, with implementation phased in 2 steps, for June 2010 and June 2011 data

26 Progress has been made also to enhance security statistics (Recommendation # 7)

both conceptually through the BIS-ECB-IMF Handbook on Securities Statistics and

through the collection of data by the BIS The BIS has solicited authorization from a wider range of central banks to report residential property price indices for dissemination

on the BIS website (Recommendation # 19)

27 The public sector debt database (Recommendation # 18) is well advanced to be launched by end-calendar 2010, following the Task Force on Finance Statistics (TFFS)14endorsement of the proposal for the World Bank to gather quarterly public sector debt data from developing and emerging market countries The PGI website

(Recommendation # 20) of economic and financial data for G-20 economies, initially released by the IAG in April 2009, was significantly enhanced in December 2009 and is attracting world-wide attention

28 The global financial crisis reinforced the importance of integrated economic data, both stocks and flows, so that the impact of developments in one sector of the economy

12 It was also decided to add a simplified table on countries’ external debt by remaining maturity (on an encouraged” basis) to better monitor the vulnerability of domestic economies to shocks.

13 See http://www.imf.org/external/pp/longres.aspx?id=4431

14 The TFFS consists of representatives of the BIS, Commonwealth Secretariat, ECB, Eurostat, IMF (Chair), OECD, Paris Club, UNCTAD and the World Bank

on other sectors, and flows such as valuation changes, can be reliably analyzed

Strengthening sectoral information is reflected in Recommendation # 15 The IMF is currently creating an inventory of existing practices with the intent of conducting an expert group meeting in early 2011, to share experiences, discuss the gaps, and identify common templates to take this work forward

29 Two recommendations deserve particular attention because of their importance in helping to understand cross-border financial networks (recommendations # 10 and # 11) These recommendations build on the existing initiatives of the quarterly BIS IBS and the annual IMF CPIS, which provide data on cross-border banking transactions and portfolio debt and equity positions respectively.15

30 These data sets help track financial transactions and/or positions on a bilateral basis In addition to enhancements regarding country coverage, the CGFS and the IMF Balance of Payments Statistics Committee have created working groups to study other enhancements (such as the separate identification of nonbank financial institutions in the consolidated banking data, as well as information required to better track funding patterns and maturity mismatches in the international financial system in the case of the BIS (also relevant for Recommendation # 4); and, the enhancement of the frequency and timeliness

of the CPIS data and the identification of the institutional sector of the foreign debtor in the case of the IMF) These working groups are expected to give careful consideration to the benefits and the costs of enhancements and report to their parent committees in the second half of calendar 2010

31 The involvement of all the G-20 economies in these two long-standing collections

is fundamental given their relevance for understanding cross-border financial flows and positions In particular, there are positive externalities that flow to other economies

through mirror data that can be compiled from the counterpart information supplied In this regard, the IMF and the BIS continue to work to increase country participation in the CPIS, and the IBS, respectively

II C HALLENGES AND I NSTITUTIONAL A RRANGEMENTS

32 At the senior officials’ conference in Basel, a number of challenges were

identified Given the different levels of statistical development among the G-20

economies and resource constraints, flexibility will be needed in the timetables for

implementation The legal framework for data collection might need to be strengthened

in some economies Moreover, to close all the gaps identified in these 20

recommendations, additional resources are likely to be required for statistical functions Finance Ministers and Central Bank Governors are encouraged to support an increase in human and financial resources to address data gaps revealed by the global financial crisis

15 The IMF has also conducted a Coordinated Direct Investment Survey with a reference date of end-2009 First results are expected towards the end of calendar 2010

33 The IMF staff plan to visit individual G-20 economies to discuss reporting

practices and resource implications (including for respondents) in implementing the work plans They will discuss with national compilers the priorities that have emerged

34 To successfully implement the work program, an effective coordination of the work at the international level is needed, not least to leverage resources and minimize costs The G-20 November 2009 report set out the institutional structure for guiding and monitoring progress Lead agencies have been appointed to take responsibility for

individual recommendations The IMF staff and FSB Secretariat have cooperated closely

in overseeing the whole program, and shall provide annual updates on progress to the G-20 finance ministers and central bank governors, as agreed in November 2009 In particular, the IAG and other international statistical groups have supported the process Moreover, the IMF staff and FSB Secretariat plan to conduct a further meeting of senior officials in the first half of 2011 to assess further progress and next steps

III W ORK P ROGRAM

35 The table following the Executive Summary provides a summary of progress, and

the proposed work program going forward for implementing the G-20 initiatives As

noted above detailed two-page notes on each recommendation that provide further detail are presented in the Annex

36 The report asks for the endorsement by the G-20 finance ministers and central

bank governors of these action plans and timetables

Annex: Detailed Action Plans and Timetables Recommendation 2: Financial Soundness Indicators

The IMF to work on increasing the number of countries disseminating Financial Soundness Indicators (FSIs)—including expanding country coverage to encompass all G-20 members— and on other improvements to the FSI website, including preferably quarterly reporting FSI list to be reviewed

Lead agency: IMF

I M AJOR R ECENT D EVELOPMENTS

In July 2009, the IMF launched a website to disseminate Financial Soundness Indicators data for IMF member countries Currently, 49 countries report FSIs for publication on the

website: http://fsi.imf.org/FSIHome.aspx#Group Countries choose to report various

combinations of the 12 core FSIs (for deposit takers) and 28 encouraged FSIs (including

13 for deposit takers).16 Four G-20 economies do not report FSIs for dissemination on the

IMF website

Work on updating the methodology in the Compilation Guide on FSIs (Guide) has involved

close consultation with the FSI Reference Group of Experts, composed of 17 international and regional agencies, with amendments posted on the IMF website in July 2008 Also,

training courses on FSIs have been conducted for IMF member countries’ compilers to

promote the use of the Guide as a benchmark

II C URRENT P OSITION

After the launch of the FSI website in July 2009, the IMF Statistics Department (STA) is

giving a high priority to streamlining the FSI template in order to reduce the burden on the reporting countries as well as to promote countries’ participation in the regular submission of FSIs to the IMF Further enhancements to the FSI website are also under way to make it

more user-friendly and capable of accepting queries created by users

Following consultation with subscribers and capital market participants, the IMF Executive Board agreed to include seven FSIs in the IMF’s Special Data Dissemination Standard

(SDDS) on an encouraged basis.17 This should support reporting of FSIs Further, work is in progressto integrate the regularly reported FSI data into the IMF’s Global Financial Stability

16 Following an initial consultative meeting of experts and a survey of member countries, the IMF Executive Board endorsed a list of core and encouraged Financial Soundness Indicators (FSIs) in June 2001:

http://www.imf.org/external/np/sta/fsi/eng/fsi.htm

17 These FSIs are regulatory tier 1 capital to risk-weighted assets, regulatory tier 1 capital to assets,

nonperforming loans net of provisions to capital, nonperforming loans to total gross loans, return on assets,

liquid assets to short-term liabilities, and net open position in foreign exchange to capital

Report (GFSR) This project is slated to be completed in early 2011 (with the April 2011

issue of the GFSR)

III W AY F ORWARD

In response to this recommendation, one of the objectives of the FSI project is to increase the number of countries reporting FSIs for dissemination on the IMF website, and encourage quarterly reporting The recent steps taken and described above—streamlined reporting, inclusion of FSIs in the SDDS on an encouraged basis, and regular reporting of data in the

GFSR—should support this process In particular, IMF staff will work in implementing the

noted Executive Board decision on the SDDS; expanding the use of FSIs in other Fund publications, such as Financial Sector Assessment Program (FSAP) reports, and the IMF's Vulnerability Exercise; and increasing the reporting of such indicators in staff reports A number of new countries will be invited each year to participate in the regular submission of FSIs to STA, and in particular, the IMF is to work to encourage the remaining G-20

economies that currently do not report FSIs for dissemination on the IMF website to do so The recommendation calls also to review and extend the list of FSIs In the second half of

2011, when ongoing discussions on regulatory reforms are expected to be settled, the IMF will organize a meeting of the FSI Reference Group of Experts as well as other international agencies and national authorities to discuss possible changes needed in the list of FSIs and the methodology for compiling them The changes are envisaged to include developing new FSIs for sectors other than deposit takers, such as other financial corporations, nonfinancial corporations, and households This work will also aim to improve cross-country

comparability of FSIs and encourage continued efforts by the IMF and other international agencies to harmonize the methodologies of data compilation and reporting

The IMF staff is to report back to the IMF Executive Board on the work on FSIs at the Eighth Review of the IMF’s Data Standards Initiatives, provisionally scheduled for the first half of 2012

Recommendation 3: Tail Risks in the Financial System and Variation in Distributions

of, and Concentrations in, Activity

In consultation with national authorities, and drawing on the Financial Soundness Indicators Compilation Guide, the IMF to investigate, develop and encourage implementation of

standard measures that can provide information on tail risks, concentrations, variations in distributions, and the volatility of indicators over time

Lead agency: IMF

I M AJOR RECENT D EVELOPMENTS

While there is no unequivocal and generally accepted definition of tail risk as it applies to

financial stability, a working definition commonly used by researchers and practitioners is that “tail risk is the risk of large unexpected losses (low probability but large impact) for the financial sector as a whole” As such, this definition is very close to the concept of systemic risk, for which there exist a number of techniques and modeling approaches that have been recently developed

In response to this recommendation, work has proceeded in taking stock of existing

conceptual frameworks and models The Table below provides an illustrative taxonomy of some of these models They can be divided according to the type of data that they rely on:

(i) accounting data, (ii) interbank exposures data, (iii) price and market data, or (iv) a

combination of the above

Going forward, data requirements to measure tail and systemic risks should be guided by

advances on the analytical side Therefore, agreement on measures of tail and systemic risks need to precede calls for collecting additional specific statistics

Regarding measures of concentration and dispersion, these are described in the IMF’s

Financial Soundness Compilation Guide, Chapter 15 It should be noted, however, that data

on measures of concentration and dispersion are not currently collected under the existing

IMF data collection framework

II C URRENT P OSITION

Progress in this area faces the following critical challenges:

 Making definitions of tail and systemic risks operationally relevant: it is critical to

translate these definitions into measures for which data are relatively easy to collect and which are monitorable on an ongoing basis for macro prudential surveillance

 The definitions of tail and systemic risks must also be flexible enough to be able to

capture new tail and systemic risks as they emerge in the future

III W AY F ORWARD

Given the complexity of the issues and the number of stakeholders involved, the IMF’s Monetary and Capital Markets Department (MCM) held a conference on these topics in late May 2010 (after this report was finalized) which was attended by academics, financial sector representatives, and public sector officials at the Fund’s Headquarters in May 2010 The priorities of the conference are to:

 Explore whether there is a consensus among supervisors, financial sector

representatives, and academics regarding an operational definition of tail and

systemic risks

 Explore potential ways to develop operational measures of tail risks, and to review

different approaches to measuring such risks

 Identify common elements and elaborate proposals on a possible common approach

 Identify the needs for additional information to compile measures of tail risks

 Discuss the feasibility of devising practical ways to share relevant information among

key stakeholders while satisfying the main confidentiality concerns of the parties involved

Therefore, work on the identification and measurement of tail and systemic risks is likely to extend over a period of time After the conference, a summary report highlighting potential next steps will be circulated to interested parties for consultation Based on this feedback, new concrete steps will be agreed upon

The longer-term objective is to develop conceptual guidance in the first half of 2011 for discussion at the FSI Reference Group of Experts, adoption into the FSI methodology, and eventually data collection

24

Taxonomy of Representative Financial Tail-Risk Models

1 IMF Working Paper No 07/59, 2007, (Washington: IMF)

2 IMF Working Paper No 09/4, 2009, (Washington: IMF)

3 Global Financial Stability Report, World Economic and Financial Surveys, April, (Washington: IMF) Chapter 2, “Assessing the Systemic Implications of Financial Linkages.”

4 Gray, D.F., and A A Jobst, 2010, “New Directions in Financial Sector and Sovereign Risk Management, Journal of Investment Management, Vol 8, No 1, pp 23–38.

Accounting-based Inter-bank accounting exposures

Accounting Balance Sheet Network Simulations Equity Joint Tail Risk CDS CoRisk Analysis CDS-PoD Distress Dependence Implemented/Calibrated

using Information from

Accounting balance sheet data for institution and system

Interbank exposures data Equity market-based joint tail risk

indicators from equity returns or higher moments of equity options

5-year individual CDS spreads of financial institutions.

Individual CDS-PoDs 5

Outputs (i) Provides static accounting-based

financial stability inditcators, (ii) quanitfies changes in book assets

and capital

(i) Provides metric on domino effect induced by alternative distress events, (ii) Identifies systemic linkages and vulnerable countries/institutions, (iii) Quantifies potential capital losses at country/institutional level; and (iv) can track potential contagion paths.

(i) Provides metric of time varying non-linear measures of dependence (i.e correlation in the presence of fat- tailed distributions), (ii) Provides probability measure of joint co- movement in equity tail events over

time.

(i) Estimates of unconditional and conditional credit risk measures for different quantiles (or 'risk regimes'), and (ii) estimates of the effect on conditional credit risk induced by 'source' institutions on ‘locus’

institutions during stress regimes.

(i) Recovers multivariate density and thus common distress in the system: JPoD, BSI; (ii) DiDe; and (iii) Probability of cascade effects triggered by particular FI.

Advantages (i) Data widely available (i) Allows identification of most

systemic and vulnerable institutions within a system, and (ii) can be used to

elaborate "risk maps" of contagion

effects.

(i) Captures effects of direct and indirect linkages in changes in equity between financial institutions, as well

as the regime-dependent behavior, (ii) Can capture spill-overs between financial institutions, markets, and between countries

(i) captures institutions’ dependence risk from direct and indirect linkages, (ii) can be used to

co-elaborate " risk maps "

(i) Able to use other PoDs; (ii) Multiple outputs; (iii) Includes linear and non-linear dependence; and (iv) Endogenous time-varying distress dependence

Shortcomings (i) static backward-looking

indicator; (ii) does not account for probability of default; (iii) difficult issues in proper aggegation and correlation methodologies

(i) Requires data on inter-institution exposures, and (ii) static modeling of institutional behavior.

(i) Requires liquid and frequently traded equity price data, and (ii) if the model inputs use equity option information it requires a set of liquid equity option prices at different strike prices.

Usefulness is undermined by factors that affect market efficiency

(i) CDS may overstates objective default probabilities; (ii) uncertainties

on what revovery rate to assume to get default probability; (iii) CDS affected by presence of government

Jobst (2007), Gray and Jobst (2009) 4 GFSR (2009) 2 Segoviano and Goodhart (2009) 2

Notes: BSI = bank stability index; CCA = contingent claims approach; CDS = credit default swap; DiDe = distress dependence matrix; EDF = expected default frequency; JPoD = joint probability of default.

M a r k e t - b a s e d

Recommendation 4: Aggregate Leverage and Maturity Mismatches

Further investigation of the measures of system-wide macroprudential risk to be undertaken

by the international community As a first step, the BIS and the IMF should complete their work on developing measures of aggregate leverage and maturity mismatches in the

financial system, drawing on inputs from the Committee on the Global Financial System (CGFS) and the Basel Committee on Banking Supervision (BCBS)

Lead agencies: BIS and IMF

I M AJOR RECENT D EVELOPMENTS

The BIS, both directly and indirectly via its Standing Committees, has done a lot of work on systemic risk analysis over the years Drawing on the BIS’s International Banking Statistics (IBS) data, the BIS has made significant advances in developing measures of maturity mismatches (“funding gaps”) on banks’ international balance sheets.18This work represents the first consistent measures of maturity mismatch for the core financial system One of the findings is that maturity mismatches in the banking system seem to build up slowly over an extended period of time This suggests that they can in fact be tracked, given the availability

of suitable indicators (such as the ones based on the IBS)

However, the BIS’s IBS-based work also illustrates the limits of analytical exercises based

on large-scale reporting frameworks First, coverage is restricted to banking entities and, for those, only their international activities Second, only on-balance sheet items are covered (abstracting from certain adjustments made to generate ultimate risk positions; some other derivatives positions can in principle be inferred from on-balance sheet data) Third,

interlinkages are known only at the sectoral level This limits the usefulness of this and other aggregate datasets in dealing with system-wide leverage, particularly outside the banking sector.19

The IMF has started work to assess the viability and desirability of a framework for

monitoring leverage and maturity mismatches at the sectoral level This approach

complements more aggregate, model-based approaches to macroprudential risk

measurement Severe information gaps among some of the most leveraged sectors of the financial system have been identified Thus, by design, the IMF intends to focus on

developing leverage and maturity mismatch indicators for sectors where such indicators do not exist or where data availability is extremely sparse These sectors would include hedge funds, components of the shadow banking system (e.g., money and repo markets), off-

balance sheet activities, and derivatives, including their use by corporates and public sector institutions

II C URRENT P OSITION

The BIS’ IBS data allow for an analysis of maturity mismatches in the international context, and relatively small enhancements could be made to improve these measures (this includes measures of on-balance sheet leverage) Going beyond this existing work, and hence beyond the IBS, would likely require additional data collection or extensions of the reporting

perimeter of existing statistical datasets It is unlikely, however, that extensions to aggregate datasets will reliably capture system-wide leverage Alternative analytical frameworks for the measurement of system-wide leverage exist, but would require individual institution-level data to cover inter-linkages.20 Possibilities in this context are being explored with regard to recommendations # 8 and # 9

III W AY F ORWARD

Taking into account ongoing work and in response to this recommendation, the IMF, with the participation of the BIS and the FSB, held a conference in May 2010 (after this report was finalized) to focus on operationalizing systemic risk measurements The conference aimed to develop an intellectual consensus around conceptually sound measures for the sectors noted above If such a consensus can be developed, the next steps would be to explore specific metrics, identify the data required to calculate them, and assess the desirability (e.g

cost/benefit) and feasibility of collecting relevant data

In addition to its contribution to the IMF conference, the BIS intends to continue its current work on system-wide measures of risk Key priorities include analytically-driven

improvements of existing data sets (in particular, its IBS; see also Recommendation # 11), efforts to enhance indirect measures of leverage for systemically important institutions that embed inter-linkages, and regular dissemination of updates of existing measures

IMF and BIS staff intend to complete their work on developing measures of aggregate

leverage and maturity mismatches in the financial system, in time for the June 2011 report The work will draw on the final version of the joint BCBS/CGFS working group report on systemic liquidity risk,21 and any results from ongoing work on recommendations # 8 and